AIC Student debt research: On the home front – students and parents are poles apart when it comes to the subject of student debt
The Association of Investment Companies’ (AIC) annual student debt survey suggests some startling differences of opinion between students and parents. Whether it’s where to live, where to study, whether university is actually worth it, expected levels of debt or how to fund university education: students and parents have some radically differing views.
But one thing is clear: parents are prepared to make some very real sacrifices to help their children through university, with almost a fifth (19%) of those who contribute financially prepared to use all or most of their cash savings. Many parents may find themselves more out of pocket than they expected, because where parents and students both need a reality check is when it comes to anticipated levels of debt.
With the arrival of tuition fees, the average debt for students starting at a UK university in 2012 is expected to be a whopping £53,000* on graduation. Yet on average students are currently anticipating their debt on graduation to be £27,140. Whilst wide off the mark, this is still a little more realistic than parents’ estimates (£22,179). Given that 63% of parents expect to contribute towards university costs, it seems many will be in for a shock.
Is it worth it?
Given the costs of university, some 50% of parents who say they don’t think university education is worthwhile today admit that they have suggested that their children reconsider going to university, although only 29% of students say they have considered this option. And whilst 58% of students think university education is definitely worthwhile in helping them in their chosen career, despite the costs involved, only 34% of parents agree. Parents are much more tentative, with 45% thinking university is ‘probably’ worthwhile, compared to 34% of students. Some 14% of parents believe their children will find part time work whilst at university, although only 8% of students say they plan to do so as the main way of funding their time at university.
Bank of Grandma and Grandpa
Grandparents are increasingly stepping in to help fund university costs: some 16% of parents say grandparents are helping towards the cost of university, to an average tune of £1,907 per year. This is up from 14% in 2013, 13% in 2012 and 11% in 2011.
Live at home?
Whilst 17% of students who are planning to go to university say they will live at home to save money during term time, some 44% of parents think it likely their children will live at home to save money, suggesting some awkward conversations at home.
Parents sacrificing financial security
The research suggests that many parents are willing to put their own financial security at risk to help their child through university: of those who contribute financially nearly a fifth (19%) said they will use all or most of their cash savings. In addition, 55% will use some of their cash savings, 12% will sell shares and investments, 7% will take out a loan in their own names, 6% will downsize the family home to release cash, and 4% will remortgage.
Parents are also willing to sacrifice annual holidays (26%), new cars (18%), early retirement (13%), home improvements (12%), and moving to a bigger home (11%) to help their children.
Whilst 90% of students who plan to go to university say how much a university is charging in tuition fees won’t have an impact on their choice of university, fewer parents (60%) think the level of tuition fees is not a consideration. Some 22% of parents say they will encourage their child to choose a lower charging university, but only 7% of students say they would actively choose a lower charging university for the cost benefit alone.
Given the costs of university, 44% of students say they have considered going abroad to study, with 22% of parents saying they have also suggested this to their children.
Financial help: university or property?
Given a choice between help with university expenses, or first property, help to go traveling or new car, students mostly wanted help with university costs (46%), with even more parents preferring to help their child with university costs (59%). Many more students would prefer help with buying a first property (34%) compared to 21% of parents.
Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said:
"As university expenses continue to spiral, reliance has increased on the bank of Mum and Dad, and now the bank of Grandma and Grandpa is becoming significant. There’s clearly a difference of opinion between the generations about how some university costs might be mitigated, particularly when it comes to whether or not to live at home, or to choose a lower charging university. Judging from the financial sacrifices many parents are prepared to make, in many cases they will end up footing much of the bill.
“Most striking is the extent to which students and parents are both underestimating the costs of a university education. With some forward planning, a small investment is worthwhile over the long-term and some parents could avoid having to raid their cash savings. A saving of £50 per month over 18 years in the average investment company has grown to £26,206, which would be a big help towards university costs. Over the same period, a lump sum of £1,000 would have grown to £4,020. With low entry levels, professional fund management, access to the long-term potential of the stock market, and a variety of sectors and risk profiles to choose from, investment companies are a useful way to invest for children.”
Share price total return